Euro Drops on Fiscal Concerns

Posted September 18, 2010

The euro fell from the five week high against the US dollar it had. This was due to new concerns over debt.


The Euro

During the Friday currency trading session, the euro played the central role in the currency movements. Investors are concerned over the potential euro zone sovereign debt crisis, brought to the front of minds after a reports out of Ireland. Irish officials stated that recent reports that the country would need a financial lifeline were not accurate and that the country was not in need. However, investors still pulled back from the euro. 

This was due to the cost to insure Ireland’s debt against a potential default climbed on Friday to the highest level it has ever been at. Portugal and Greece are also likely to have fiscal concerns, investors believe. Both countries are also seen as costly in terms of insuring their debt. 

The euro has risen by nine percent since the month of June against the US dollar. At that point, it hit a four year low against the dollar at US $1.1876. 

What is making investors in particular concerned is that the country has been using austerity measures to control fiscal concerns. Investors, knowing this, are concerned that if Ireland is unable to pull out of its fiscal problems using austerity measures that other countries, such as Spain, Portugal and Greece may also struggle with fiscal measures. This fear in the euro zone debt caused investors to sell off the euro throughout the day.

Net Speculative Bets

During the trading day, investors cut bets against the euro by 60 percent. Bets against the euro were at 9644 contracts and had a value of some US $1.56 billion in the week that was recorded ending Tuesday. The previous week showed net speculative bets were valued at US $3.9 billion. The psychological level of US $1.30 also played a role, with the sharp reduction in the number of anti euro bets moving with the current’ week’s increase in the euro against the US dollar.

By The Numbers

By the end of trading on Friday, the euro moved from US $1.3085 to US $1.3039. The euro moved from Y 112.29 to Y 111.89 for the day. The US dollar moved from Y 85.l81 on Thursday to Y 85.82 for the day. The US dollar moved from CHF 1.0146 to CHF 1.0098. The UK dollar moved from US $1.5635 to US $1.526. The ICE Dollar Index moved the US dollar from 81.224 to US 81.437.